Changes in the structure of household expenditure in urban and rural China

In the last two decades, China has witnessed a remarkable change in household expenditure structure following the rapid growth of household income. Using provincial-level panel data from 2001 to 2019 and the Quadratic Almost Ideal Demand System model, we derive the expenditure elasticities, as well as uncompensated and compensated price elasticities, for urban and rural households. Our results suggest that food and clothing are ‘necessity’ goods, whereas residence, education, and transportation are ‘luxury’ goods for both urban and rural households. Household facilities and medical services are necessities for urban households, while they are luxuries for rural households. All own-price elasticity estimates are negative, indicating that no Giffen goods exist. We also observe temporal changes in the household expenditure structure over China’s Five-Year Plan cycles. Finally, we find significant differences in the own-price elasticity across the eastern, central, and western regions with varying levels of economic development.